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An economic view of carbon allowances market

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Abstract

The aim of this work is to bring an econometric approach upon the CO2 market. We identify the specificities of this market, and regarding the carbon as a commodity. We investigate the econometric particularities of CO2 prices behavior and their result of the calibration. We apprehend and explain the reasons of the non-Gaussian behavior of this market focusing mainly upon jump diffusion and generalized hyperbolic distributions. We test these results for the risk modeling of a structured product specific to the carbon market, the swap between two carbon instruments: The European Union Allowances and the Certiified Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of different models upon the risk measure and the allocated capital

Suggested Citation

  • Marius-Cristian Frunza & Dominique Guegan, 2009. "An economic view of carbon allowances market," Documents de travail du Centre d'Economie de la Sorbonne 09038, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:09038
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2009/09038.pdf
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    Cited by:

    1. Marius-Cristian Frunza & Dominique Guegan & Antonin Lassoudière, 2010. "Dynamic factor analysis of carbon allowances prices: From classic Arbitrage Pricing Theory to Switching Regimes," Post-Print halshs-00505145, HAL.
    2. Marius-Cristian Frunza & Dominique Guegan & Antonin Lassoudière, 2010. "Statistical evidence of tax fraud on the carbon allowances market," Post-Print halshs-00523458, HAL.

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    Keywords

    Carbon; Normal Inverse Gaussian; CER; EUA; Swap;
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